Personal Finance

Senate may soon vote on a bill to change certain Social Security rules

Published

5 hours ago

December 18, 2024

Blank Social Security checks are run through a printer at the U.S. Treasury printing facility February 11, 2005 in Philadelphia, Pennsylvania.

William Thomas Cain | Getty Images

During the Senate’s final days of business in this Congressional session, it is expected to vote on a bill that would change certain Social Security rules.

The bill — the Social Security Fairness Act — would repeal provisions that reduce Social Security benefits for some individuals who also receive pension income from jobs in the public sector.

On Nov. 12, the House of Representatives passed the bill with the support of members of both sides of the aisle.

Now, it is up to the Senate to pass the bill amid a packed schedule that also includes a deadline to avoid a federal government shutdown.

What Social Security rules would be repealed?

The Social Security Fairness Act would eliminate certain rules affecting some public pensioners — the Windfall Elimination Provision, or WEP, and the Government Pension Offset, or GPO.

The WEP reduces Social Security benefit payments for individuals who also receive income from non-covered pensions — payments from employers who did not withhold Social Security taxes from their salaries.

The GPO adjusts Social Security spousal or widow(er) benefits for people who receive income from non-covered pensions.

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Both rules have been in effect for decades.

The WEP was enacted in 1983 to make it so workers with non-covered pensions were not reimbursed as though they were long-time low wage earners. Social Security has a progressive benefit formula, which means low earners receive a higher income replacement rate.

The Government Pension Offset was established in 1977 and reduces Social Security benefits for spouses and surviving spouses who receive a pension based on their own government work that wasn’t subject to Social Security payroll taxes and Social Security spousal benefits based on their spouse’s work record.

Who is — and isn’t — affected by the rules?

The WEP affected 2.01 million individuals — or 3.1% of all Social Security beneficiaries — as of 2022, according to the Social Security Administration.

The GPO applied to almost 735,000 beneficiaries as of 2022, according to the Social Security Administration. That rule affects about 1% of all beneficiaries, according to previous estimates from the Congressional Research Service.

To be sure, the WEP and GPO do not apply to everyone.

Specifically, the WEP doesn’t affect beneficiaries who have 30 or more years of substantial earnings under Social Security. The rule also doesn’t apply to individuals who fall under other specific categories, according to the Social Security Administration: federal workers who were first hired after Dec. 31, 1983; employees of non-profit organizations that were exempt from Social Security coverage as of Dec. 31, 1983; individuals who only receive pension income for railroad employment; and individuals whose only work that didn’t include Social Security taxes was before 1957.

The GPO generally doesn’t affect spouses or surviving spouses who receive government pensions not based on their earnings or who are federal, state or local government employees whose pension is from employment where they paid Social Security taxes.

The Social Security Administration provides a tool on its website to help estimate how a pension may affect Social Security benefits.

What are the chances the bill will pass?

Last week, Senate Majority Leader Chuck Schumer, D-New York, said he would put the Social Security Fairness Act up for a vote.

Schumer has since filed a notice that he intends to call a cloture vote on the motion to proceed this week. If the cloture vote to proceed has the necessary 60 votes, the rest of the process may go “fairly quickly,” said Maria Freese, senior legislative representative at the National Committee to Preserve Social Security and Medicare.

“The big vote is usually the motion to proceed,” Freese said. “If they can get 60 for that, then they should be in pretty good shape to get it done this year.”

A Senate version of the bill has 62 co-sponsors. However, there is no guarantee the bill will get 62 votes, Freese said. Two co-sponsors — Sens. Bob Menendez, D-New Jersey, and Dianne Feinstein, D-Calif. — are no longer in office. However, their replacements — Sens. Andy Kim, D-New Jersey, and Adam Schiff, D-California — both supported the bill when they were House members.

Yet another co-sponsor — Vice president-elect and current Sen. J.D. Vance, R-Ohio — may not be present to vote, Freese said.

Once a motion to proceed passes, amendments to the bill could be proposed if Senate leadership allows for it, said Emerson Sprick, associate director of economic policy at the Bipartisan Policy Center. Those amendments could seek to replace a full repeal of the rules with a different fix or to offset the cost of the benefit increases.

“It has not been the ideal process for a significant change to Social Security to go through,” Sprick said.

The co-sponsors of the House bill had to file a discharge petition to bring it to the floor for a vote, which means it didn’t go through committees. Similarly, lawmakers in the Senate have not had the opportunity to hear the drawbacks of a full repeal of the rules and the alternatives, Sprick said.

“Full repeal makes the program less fair and more financially insecure,” Sprick said.

How soon would affected beneficiaries see changes in their benefit checks?

The change for nearly 3 million Social Security beneficiaries may take time to implement, according to Freese.

The Social Security Administration, which is already short staffed, may lose another 2,000 employees if it does not get the additional funding it requested in the continuing resolution Congress is also working to finalize, she said.

Moreover, it would take time for the agency’s staff to reprogram its computers and then begin sending out the new benefit payment amounts.

If the change is not put into effect immediately, the Social Security Administration will likely retroactively send catch-up checks or deposits to make up for the difference, Freese said.

How will the bill affect other Social Security reform?

The Social Security Fairness Act has received strong support from groups representing firefighters, police, teachers and other government employees who would be affected by the repeal of these rules.

However, policy experts have generally voiced opposition to the change, since nixing the rules would alter the progressive nature of the program.

It would also move Social Security’s projected trust fund depletion date to six months sooner, while costing about $196 billion over a decade, according to the Committee for a Responsible Federal Budget.

Even without this change, the trust fund the program relies on to pay retirement benefits may run out in nine years, the program’s trustees have projected.

“We are racing to our own fiscal demise,” Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said in a statement criticizing the efforts to repeal the WEP and GPO rules.

If the bill passes, it would also affect future reform efforts. But the problems Social Security now faces are bigger than just paying for the WEP and GPO repeal, Freese said.

“The closer it gets to the depletion date, the harder it gets, because you end up having less flexibility in terms of what you can do for the program in order to make it solvent,” Freese said. “You have less time to implement the changes.”

Personal Finance

What to know before rebalancing with bitcoin profits, advisor says

Published

6 minutes ago

December 18, 2024

Business Finance News

Hispanolistic | E+ | Getty Images

Many investors are likely still deciding whether to stay in bitcoin or reduce their profits from the last bull run to new all-time highs.

So, after a strong year for bitcoin, it could be time for investors to weigh rebalancing their portfolio by shifting assets to align with other financial goals, according to financial experts.

The price of the flagship digital currency sailed past $100,000 in early December and was still up more than 130% year-to-date, as of Dec. 18.

Some investors now have large bitcoin allocations — and they could have a chance to “take some risk off the table,” said certified financial planner Douglas Boneparth, president of Bone Fide Wealth in New York.

“The golden rule of ‘never invest more than you’re willing to lose’ comes into play, especially when we’re talking about speculative assets,” said Boneparth, who is also a member of CNBC’s Financial Advisor Council.

Before using bitcoin profits to buy other investments, you may consider using the gains to fund another financial goal, like retiring early or buying a home, he said.

Decide on your ‘line in the sand’

There’s a different thought process if you want the money to stay invested, Boneparth said.

Typically, advisors pick an asset allocation, or mix of investments, based on a client’s goals, risk tolerance and timeline.

Often, there’s a “line in the sand” for the maximum percentages of a single asset, he said.

Typically, Boneparth uses a maximum of 20% of a client’s “investable net worth,” which doesn’t include a home, before he starts trimming allocations of one holding.

‘There’s no free lunch’ with taxes

When selling crypto in a brokerage account or exchange, you could owe taxes on growth, depending on how long you’ve owned the asset, Boneparth said.

“There’s no free lunch,” he said. “Just because it’s crypto doesn’t mean you’re exempt from paying taxes on your gains.”

You’ll owe regular income taxes on profits from crypto owned for one year or less. But you’ll trigger long-term capital gains — taxed at 0%, 15% or 20% — on profitable assets owned for more than one year.

However, you could harvest crypto gains tax-free if you’re in the 0% long-term capital gains bracket for 2024, experts say.

For 2024, you’re eligible for the 0% rate with taxable income of $47,025 or less for single filers and $94,050 or less for married couples filing jointly. These amounts include any gains from crypto sales.

“That’s a very effective strategy if you’re in that bracket,” Andrew Gordon, a tax attorney, certified public accountant and president of Gordon Law Group, previously told CNBC.

The 0% capital gains bracket may be bigger than you expect because it’s based on taxable income, which you calculate by subtracting the greater of the standard or itemized deductions from your adjusted gross income.

Financial advisors take on crypto: Here's what to know

Personal Finance

Paying down debt is a top financial goal for 2025. These tips can help

Published

37 minutes ago

December 18, 2024

Business Finance News

Skynesher | E+ | Getty Images

When it comes to financial resolutions for 2025, there’s one goal that often lands on the top of the list — paying down debt, according to a new survey from Bankrate.

That’s as a majority of Americans — 89% — say they have a main financial goal for 2025, the November survey of almost 2,500 adults found.

While paying down debt came in as a top goal, with 21%, other items on Americans’ financial to-do lists include saving more for emergencies, with 12%; getting a higher paying job or additional source of income, 11%; budgeting and spending better, 10%; saving more for retirement and investing more money, each with 8%; saving for non-essential purchases, 6%; and buying a new home, 4%.

Those goals cap off a year that had some financial challenges for consumers. Some prices remain elevated, even as the pace of inflation has subsided. As Americans grapple with higher costs, credit card debt recently climbed to a record $1.17 trillion. The average credit card debt per borrower rose to $6,380 in the third quarter, according to TransUnion.

Banks blame high credit card rates on regulation that's unlikely to arrive

Lower interest rates may help reduce the costs of holding that debt. The Federal Reserve moved on Wednesday to cut rates for the third time since September, for a total reduction of one percentage point.

Yet the best-qualified credit card borrowers — those with superior credit scores — still have an average rate of 20.35%, down from around 20.79% in August, according to Mark Hamrick, senior economic analyst at Bankrate.

“It could be injurious to personal finances if people accumulated debt that they’re not substantially paying down,” Hamrick said. “It’s prudent and heartening to see that people are identifying debt broadly as something they want to address in the coming year.”

‘The Fed isn’t the cavalry coming to save you’

To pay down credit card balances — as well as other debts from auto loans or other lines of credit — individuals may need to shift their financial priorities.

A majority of Americans admit to having bad financial habits, finds a recent survey from Allianz Life Insurance Company of North America.

That includes 30% who admit to spending too much money on things they don’t need; 28% who don’t save any money; 27% who only save some money; 23% who aren’t paying down debt fast enough; and 21% who spend more than they earn.

For debtors who want to pay their balances down, the best approach is to take matters into their own hands, said Matt Schulz, chief credit analyst at LendingTree.

“Even though the Fed is reducing rates, the Fed isn’t the cavalry coming to save you,” Schulz said.

Asking your credit card company for a more competitive interest rate on your debt often works, according to Schulz. About 76% of people who asked for that in the past year got their way, LendingTree found.

“It’s absolutely worth a call,” he said.

Moreover, balance holders also may keep an eye out for 0% transfer offers, which can let them lock in a no-interest promotion for a fixed amount of time, although fees may apply. Or they may consider a personal loan to help consolidate their debts for a lower rate.

Even as debtors prioritize those balances, it’s still important to prioritize personal savings, too. Experts generally recommend having at least three to six months’ living expenses set aside in case of an emergency. That way, there’s a cash cushion to turn to in the event of an unexpected car repair or veterinary bill, Shulz said.

Admittedly, by also prioritizing savings, it will take more time to pare down debt balances, he said. But having savings on hand can also help stop the debt cycle for good.

Personal Finance

What that means for you

Published

2 hours ago

December 18, 2024

Business Finance News

What to expect from the Fed in the coming year

The Federal Reserve announced Wednesday that it will lower its benchmark rate by another quarter point, or 25 basis points. This marks the third rate cut in a row — all together shaving a full percentage point off the federal funds rate since September.

For consumers struggling under the weight of high borrowing costs after a string of 11 rate increases between March 2022 and July 2023, this move comes as good news — although it may still be a while before lower rates noticeably affect household budgets.

“Interest rates took the elevator going up in 2022 and 2023 but are taking the stairs coming down,” said Greg McBride, chief financial analyst at Bankrate.com.

Although many people, overall, are feeling better about their financial situation heading into the new year, nearly 9 in 10 Americans think inflation is still a problem, and 44% think the Fed has done a bad job getting it under control, according to a recent survey by WalletHub.

“Add in talk of widespread tariffs, and you’ve got a recipe for uneasy borrowers,” said John Kiernan, WalletHub’s managing editor.

In the meantime, high interest rates have affected all sorts of consumer borrowing costs, from auto loans to credit cards.

December’s 0.25 percentage point cut will lower the Fed’s overnight borrowing rate to a range of between 4.25% and 4.50%. Although that’s not the rate consumers pay, the Fed’s moves still affect the borrowing and savings rates consumers see every day.

From credit cards and mortgage rates to auto loans and savings accounts, here’s a look at how the Fed rate cut could affect your finances in the year ahead.

Credit cards

Most credit cards have a variable rate, so there’s a direct connection to the Fed’s benchmark. Because of the central bank’s rate hike cycle, the average credit card rate rose from 16.34% in March 2022 to more than 20% today — near an all-time high.

Since the central bank started cutting interest rates, the average credit card interest rate has only edged off extremely high levels.

“Another rate cut is welcome news at the end of a chaotic year, but it ultimately doesn’t amount to much for those with debt,” said Matt Schulz, LendingTree’s credit analyst. “A quarter-point reduction may knock a dollar or two off your monthly debt payment. It certainly doesn’t change the fact that the best thing cardholders can do in 2025 is to take matters into their own hands when it comes to high interest rates.”

Rather than wait for small annual percentage rate adjustments in the months ahead, the best move for those with credit card debt is to consolidate with a 0% balance transfer card or a lower-interest personal loan, Schulz said.

Otherwise, ask your issuer for a lower rate on your current card — “that works way more often than you’d think,” he said.

Customers shop for groceries at a Costco store on December 11, 2024 in Novato, California.

Justin Sullivan | Getty Images

Auto loans

Auto loan rates are also still sky-high — the average auto loan rates for used cars are at 13.76%, while new-vehicle rates are at 9.01%, according to Cox Automotive.

Since these loans are fixed and won’t adjust with the Fed’s rate cut, “this is another case where taking matters into your own hands is your best move,” Schulz said.

In fact, anyone planning to finance a car may be able to save more than $5,000, on average, by shopping around for the best rate, a 2023 LendingTree report found.

Mortgage rates

Because 15- and 30-year mortgage rates are fixed and mostly tied to Treasury yields and the economy, they are not falling in step with Fed policy.

As of the latest tally, the average rate for a 30-year, fixed-rate mortgage increased to 6.75% from 6.67% for the week ending Dec. 13, according to Mortgage Bankers Association.

“Mortgage rates have gone up — not down — since the Fed began cutting interest rates in September,” said Bankrate’s McBride.

“With expectations for fewer rate cuts in 2025, long-term bond yields have renewed their move higher, bringing mortgage rates back near 7%,” he said.

But since most people have fixed-rate mortgages, their rate won’t change unless they refinance or sell their current home and buy another property.

Anyone shopping for a home can still find ways to save.

For example, a $350,000, 30-year fixed mortgage loan with an average rate of 6.6% would cost $56 less each month compared to November’s high of 6.84%, according to Jacob Channel, senior economic analyst at LendingTree.

“This may not seem like a lot of money at first glance, but a discount of about $62 a month translates to savings of $672 a year and $20,160 over the 30-year lifetime of the mortgage,” he said.

Student loans

Federal student loan rates are also fixed, so most borrowers won’t find much relief from rate cuts.

However, if you have a private loan, those loans may be fixed or have a variable rate tied to the Treasury bill or other rates. As the Fed cuts interest rates, the rates on those private student loans will come down over a one- or three-month period, depending on the benchmark, according to higher education expert Mark Kantrowitz.

Still, “a quarter-point interest rate cut would reduce the monthly loan payments by about $1 to $1.25 on a 10-year term, about a 1% reduction in the total loan payments,” Kantrowitz said.

Eventually, borrowers with existing variable-rate private student loans may be able to refinance into a less expensive fixed-rate loan, he said. But refinancing a federal loan into a private student loan will forgo the safety nets that come with federal loans, such as deferments, forbearances, income-driven repayment and loan forgiveness and discharge options.

Additionally, extending the term of the loan means you ultimately will pay more interest on the balance.

Savings rates

While the central bank has no direct influence on deposit rates, the yields tend to be correlated to changes in the target federal funds rate.

As a result of the Fed’s previous rate hikes, top-yielding online savings account rates have made significant moves and are still paying as much as 5% — the most savers have been able to earn in nearly two decades — up from around 1% in 2022, according to Bankrate.

“The prospect of the Fed moving at a slower pace next year is better news for savers than for borrowers,” McBride said. “The most competitive yields on savings accounts and certificates of deposit still handily outpace inflation.”

One-year CDs are now averaging 1.74%, but top-yielding CD rates pay more than 4.5%, according to Bankrate, nearly as good as a high-yield savings account.